Cheryl Coyne shouted “No more homes for millionaires!” with protesters dressed as pirates outside London City Hall this week. Inside, Mayor Boris Johnson was approving a plan by Hong Kong’s Hutchison Whampoa Ltd. to build as many as 3,500 homes close to where she lives.
“These are the kind of homes that local people will never be able to afford,” said Coyne, a 63-year-old semi-retired schoolteacher who wore a striped shirt and a skull and crossbones neck scarf. “There are thousands of people in the borough who need homes, and instead they’re building flats for multimillionaires.”
The U.K. capital’s status as a magnet for wealthy foreign home buyers is helping to drive prices in many areas beyond the reach of most Londoners. That’s putting pressure on politicians and developers to convince locals that they haven’t been forgotten in the rush to court overseas investors.
Foreign-born buyers made 69 percent of central London new-home purchases in the two years through June, with 28 percent living outside the U.K., broker Knight Frank LLP said in October. Average London house prices increased 18 percent in the first quarter from a year earlier, the most since 2003, Nationwide Building Society said on April 2.
“There is a head of steam building where people are seeing this situation, which is so blatantly unfair, and want firm action to be taken,” Darren Johnson, chairman of the London Assembly’s housing committee, said by phone. Speculation “does nothing for London whatsoever other than push prices up even further.”
Developers have refocused their sales efforts on local buyers in response to criticism of their efforts to market some homes exclusively abroad. They have stopped short of closing the door on foreign investors.
Battersea Power Station, the derelict brick landmark on the south bank of the River Thames that featured on the cover of Pink Floyd’s “Animals” album, is one of London’s largest and most talked-about housing developments. When the project’s Malaysian owners sold the first 866 homes in just three days in January, more than half went to foreign buyers. The second phase of more than 200 apartments goes on sale only in London on May 1.
Rob Tincknell, chief executive officer of the Battersea Power Station Development Co., said in an interview that the company’s staff called all 13,000 people who registered to buy the project’s 3,500 homes and intends to give preference to those who said they intend to live in the homes they buy.
“The power station is a London building that people feel very passionate about and it would be totally wrong to have it sold off to people who are just storing cash in the U.K. and not living there,” he said. “On a more practical level, we have a lot of interest. We have buyers.”
Hutchison’s development, known as Convoys Wharf, is in a neighborhood founded by King Henry VIII as a dockyard in 1514. It includes 15 percent affordable housing, or about 525 homes, according to a filing with the Greater London Authority. That’s below the 50 percent target set by the local council.
In a report to the authority, Hutchison said it couldn’t provide more affordable homes and remain viable, according to the filing. Daniel Prior, a spokesman for Hutchison at Brunswick Group, declined to comment on the project.
Foreign investment in London property took off after the financial crisis in 2008 as a weaker pound, economic instability from Europe to Asia and record-low returns on fixed-income investments prompted wealthy buyers to search for assets that would hold their value. Increasing numbers of Britons were left out of the market as banks restricted mortgage lending and unemployment increased.
Spending by non-British investors spread from luxury properties in neighborhoods such as Chelsea and Knightsbridge to new houses and apartments as builders used advance sales, many to buyers from Asia, to finance projects amid tight lending for development.
A main reason for the local backlash: two-thirds of foreign buyers are investors rather than owner-occupiers, broker Savills Plc said in November. Home prices in the city, fueled by government mortgage-assistance plans such as Help to Buy, climbed to a record of 362,699 pounds ($604,000) in the first quarter, Nationwide said. That was more than double the national average of 178,124 pounds.
In December, a group of 11 U.K. homebuilders, including Barratt Developments Plc, Taylor Wimpey Plc and Telford Homes Plc, agreed to stop giving overseas residents the first shot at buying London homes sold before they’re built. They agreed to offer properties at home and abroad at the same time.
“This really coincided with some of the negative press that was coming out about selling overseas and people leaving homes empty,” Telford Chief Executive Officer Jon Di-Stefano said in an interview at the time. “It’s actually quite expensive to market overseas and the reason people are doing it is because they need to make early sales in order to increase what they’re building.”
For Adam Haycroft, a 29-year-old copy writer living in Hornsey, north London, availability won’t make a difference if prices keep rising.
“We’ve cut things as hard as we can; we’re sharing a flat, we’re sharing a room,” he said in an interview. “Even with that, we save about 1,000 pounds a month and every time we reach what we think is a milestone, we look at the prices in London and realize we just can’t get close to buying anything.”
Programs such as Help to Buy “just fuel the fire by pushing prices up further,” Haycroft said. “They need to actively cool the market.” There has been a significant increases in mortgages available above 75 percent of the value of the home purchased, the Bank of England said in a report.
Johnson, the London mayor, faces a balancing act as he courts foreign investment on travels to countries including China and Kuwait while trying to assure voters that he’s sensitive to their concerns.
In a statement released by the Homebuilders Federation, Johnson praised the decision to stop offering property abroad first. He also called foreign investment a “long-standing and necessary part of any global city’s housing market.”
It’s too early to tell whether changes in marketing will have a substantial effect on the proportion of foreign buyers in the capital. In some of the most expensive areas, the market is changing by itself.
U.K. buyers accounted for almost half of sales in the boroughs of Kensington & Chelsea and Westminster in 2013, up from 43 percent in 2012 and 37 percent the year before, as high prices reduced demand and an improving global economy provided more safe investments for foreign investors to choose from, broker Hamptons International Ltd. said on March 31.
Londoners complain that much of the new development in the city includes apartments that only foreign investors can afford. Luxury-home developers, which often sell 30 percent of apartments abroad to finance construction, plan to build more than 20,000 properties in the capital with a value of about 50 billion pounds in the next decade, Mark Farmer, head of residential property at EC Harris, said in a November report.
The U.K. government has taken steps to increase the tax burden for luxury homes and properties owned by foreign buyers through companies. The Treasury has to be “vigilant” as prices rise, Chancellor George Osborne said today.
Even with those measures, developers will focus on building skyscrapers packed with apartments for investors because the U.K.’s housing polices favor them, Danny Dorling, author of “All That is Solid: The Great Housing Disaster,” said in an interview.
Landlords benefit from tax breaks, among them the ability to offset mortgage-interest payments and the costs of maintaining the property against income tax paid on rent. Those subsidies are worth 13 billion pounds a year to investors, according to the advocacy group Intergenerational Foundation.
Owners of U.K. properties can increase rents in line with demand, unlike cities such as Berlin, where landlords must link rents to an index published by the government and also face limits on increases following an upgrade to the property. That helped push London rents up 11 percent between May 2005 and May 2013, according to the Office for National Statistics.
There are no restrictions on the type of property a foreign investor can buy in the U.K. In Australia, by contrast, non-residents are unable to buy existing homes and can only invest in property that adds to the housing stock. The council tax system also makes little distinction for the costliest homes. The owners of one 50-million-pound home in Westminster will pay just 1,354 pounds this year, with the top tax bracket starting with homes worth more than 320,000 pounds.
London’s housing boom started with luxury properties and spread to family homes, “pricing British people out of the market,” David Green, chief executive officer of research group Civitas, said in an interview.
“If you want to solve the London problem, you begin by improving tenants’ rights and make becoming a landlord less lucrative,” Dorling said. Introducing rent controls similar to Berlin’s and creating more council tax bands would “scare overseas buyers because they won’t get these huge profits.”
Coyne, the protester at City Hall, expressed her exasperation with politicians as they prepared to approve apartments that she says local people earning any less than 40,000 pounds a year would be unable to afford. The average full-time salary in Lewisham was 29,800 pounds, according to 2011 data from the council, the most recent available.
“Ships were built here that went all over the world and already a huge anchor at the top of the high street has vanished because of this process,” she said. “We need that number of homes, but we don’t need this kind of homes.”